Facebook Inc (NASDAQ:FB) earnings typically are a good show, and they’re typically good for FB stock.
Only half of that was true this time around.
Facebook boasted a solid beat on both the top and bottom lines, as well as user count. Yet Wall Street isn’t impressed, and Facebook stock is essentially unchanged in aftermarket trading.
For its third quarter, Facebook earned $1.09 per share of FB stock on revenues of $7.01 billion, up 56% year-over-year. Both topped Street consensus views for 97 cents per share and revenues of $6.92 billion.
And despite Facebook’s scale, it still managed to beat its monthly active user (MAU) expectations. MAUs came in at a staggering 1.79 billion, topping estimates for 1.75 billion.
Other highlights in the quarter:
- Mobile DAUs (daily active users) came to 1.9 billion.
- Mobile advertising revenues now represent 84% of all ad revenues, up from 68% in the same period a year ago.
- Facebook has $26.14 billion in the bank.
UPDATE: So why the muted response in FB stock? Well, Wall Street might be considering some of the challenges that Facebook faces.
For one, Snapchat is becoming a real threat. The app delivers an astounding 10 billion video views a day, and more than 40% of the daily users are between ages 18 to 34, which is a coveted demographic for advertisers.
Snapchat is expected to launch an initial public offering next year, which will give the company even more visibility and resources. As a result, investors may actually shift their attention away from FB and plow their dollars into Snapchat instead.
And what’s next after mobile? Maybe it’s virtual reality, which certainly is a big market opportunity. But so far the results have been underwhelming, as unit volumes of the Oculus Rift device have lagged expectations. Some of the issues include snags with shipping and a hefty pricing structure. But the system also hasn’t had a breakout game.
Instead, it looks like Sony Corp (ADR) (NYSE:SNE) may be the early winner in the VR wars. Granted, it’s certainly helped by the enviable benefit of its massive PlayStation platform.
Ironically, Snapchat might have nudged out Facebook on the device front, too. The company’s Spectacles could be a big hit for the upcoming holiday season. The device is fairly simple, fashionable and focused on the key strengths of Snapchat – photos and videos.
In that light, things look dour for FB stock, but it’s important to keep things in perspective.
Facebook still is growing at a tremendous pace, and it’s profitable. FB also has some new initiatives that can help keep the growth moving. Take recently launched Marketplace, which allows users to buy and sell their wares. Facebook should get quick traction because of the huge user base and the rich database.
Next, FB is moving into the business market, with its Workplace by Facebook. It allows for chat and collaboration services. The business model involves subscription fees, which will help diversify from the heavy reliance on ad revenues.
Then there’s video, where FB has been wagering heavily. CEO Mark Zuckerberg is actually transitioning the company towards being “video first.” And the opportunity is massive; the traditional TV ad market is $70 billion a year in the U.S. alone.
From a new-money standpoint, Facebook stock isn’t even expensive compared to its hefty growth rate. FB trades at 25 times forward earnings, compared to Twitter Inc (NYSE:TWTR) at 28x and LinkedIn Corporation (NYSE:LNKD) at 40x.
As InvestorPlace.com’s Dan Burrows noted recently:
“There’s no reason to think Facebook stock can’t enjoy multiple expansion. After all, investors have been willing to pay more for this stock in the past. Over the past five years, investors have paid an average of 42 times forward earnings for shares.”
In other words, don’t count FB stock out yet.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities, and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
